Public Insurance and Mobility: An Exploratory Analysis in the Context of European Economic Unification

Many studies on the future of social security systems in a unified Europe treat the issue as merely a particular aspect of the broader question of redistribution within a federation with mobile agents. As a result, such studies typically recommend their gradual centralisation. This paper which is based on the model of Rothschild, Stiglitz and Wilson adopts a much less categorical approach, emphasising the need to clarify whether social security systems principally seek insurance or redistribution. In this analytical framework competition between public insurance systems can generate efficiency. It can also remain compatible with cross-subsidisation if the proportion of low risks is sufficiently large. The result depends on the relative proportion of high risks, on the goals of the national social security systems, and on their behaviour when competing with each over.